On real benefits and "benefits" to stay away from

Against the backdrop of the war in Gaza and the destruction of Israeli border communities, banks have created a number of benefits and promotions. The purpose of this article is to sort through real benefits versus marketing offers disguised as benefits that are best avoided.

The full list of benefits varies from bank to bank and changes frequently, therefore this article will discuss principles rather than the specific details of each benefit from each bank.

It is important to note that in recent weeks, I have been asked by people why they are not receiving clear answers from bankers regarding the cost, or more accurately, the implications of various benefits and promotions. Keep in mind: a mortgage advisor course in banks lasts about three weeks. The majority of these three weeks are spent on procedural matters, paperwork, etc. A mortgage banker is not required to provide any financial advice. Therefore, even if it's your brother who is a mortgage banker, he likely won't be able to give you a complete answer to your questions in these areas. Please contact the private mortgage advisor who initially helped you take out the mortgage to get answers. Based on calculations And customization to your situation.

Different beneficiary groups

Banks distinguish between three population groups:

1. People of the Gaza envelope. To avoid getting bogged down in definitions, we will refer to the communities where terrorists entered.
2. People living within 30 km of Gaza, people evacuated by government order from their homes (in the south or north), bereaved families, reservists during the war.
3. The rest of the citizens of Israel.

In the first group which is also the one that experienced the most atrocities. Some banks have taken on a number of mortgage payments. That is, if, for example, you have a mortgage with Poalim or Leumi, the bank will take on paying your mortgage for three months. Mizrahi Tefahot will take on four payments. Meaning, if the monthly payment is, for example, 5,000 shekels, then this is about Gift from the bank in the amount of 20,000 NIS. It should be noted that it is easy for the bank to identify residents of the Gaza envelope as it knows their apartment address. Mizrahi included the families of hostages, who are located throughout the country, in the benefit. These families, I assume, will need to contact the bank. As mentioned, these benefits change over time and vary from bank to bank. In connection with this benefit, it should be noted that the Bank of Israel did not compel it on the banks with a binding regulation, but rather competition did its part. One bank offered a benefit for a month, another increased it to three months, and then it was upgraded to four months. Competition has significance here. Someone asked me a question that many ask in such cases – what is the bank's interest? Well, here I am writing good words about the banks that did this. Like me, others too. Alternatively, a situation where the bank would try to collect mortgages from people whose families were shattered, their homes burned, and they don't know where their lives will go from now on – well, that would have caused a ripple effect. Beyond that, it may be surprising, but bankers are human beings, they are Israelis, and they are patriots. We are seeing a great mobilization of all sectors of the nation and many commercial companies to provide assistance, including banks. One can also be a bit more cynical and say that an attempt to collect mortgages from someone whose home was burned and whose family was kidnapped or murdered would not have been well-received publicly. In this context, it is worth remembering to avoid populism. Often people and politicians demand that banks "carry the stretcher" and all sorts of expressions that people usually say about others more than about themselves. If we look at Leumi and Poalim, which control the lion's share of the banking system, both are banks without a controlling core. That is, without some tycoon owning them. The ownership of these two banks is mainly held by insurance companies, i.e., the pension and study funds of you and your parents. When a bank "carries the stretcher" for something, the immediate consequence is a reduction in your parents' old-age pension and the return on your study fund. Moreover, in the game Catan (Highly recommended for financial education) My daughters and I like a system where there's a kind of penalty for anyone holding too much capital (grain, wood, metal, or sheep) instead of building something productive. Looking at bank profits in the same way: they make so much money, so perhaps taking some from them, could lead to the opposite of what's desired. A bank has no problem earning less. All it needs to do is simply be less efficient. The problem is that this inefficiency won't only affect bank profits and, as mentioned, your retirement savings, but this inefficiency will also affect many other businesses. Veterans remember that transferring money from one account to another, which is done in seconds on the bank's website today, used to be done by fax with a clerk checking and sometimes requiring us to come to the branch in person, etc. In such a situation, not only the bank is less efficient and profitable, but all businesses in the country are less efficient. In short, be careful what you wish for.

The second group It is the most interesting in my opinion because members of this group can receive a relatively significant benefit but only if they act Appropriate action. This group includes reservists, those living within 30 km of the Gaza Strip who are not included in the first group, bereaved families, and those evacuated by government order from the north or south.

In this group, the banks offered a delay of a few months in mortgage payments. No additional interest. So, if I have a loan of one million shekels with a monthly payment of 6,000 shekels and I use this benefit and postpone three payments, the total payments I will make to the bank will not change. An exception to the last sentence is if there are indexed loan tracks, but for the sake of discussion, we will ignore that and questions of nominal cost and real cost. Different banks implement this benefit in different ways. The first option is that the mortgage simply extends by three months, and all payments actually shift forward by three months. Instead of the mortgage ending, for example, in January 2035, it will end in April 2035. The second option is that the unpaid amount becomes an additional loan. interest-free For how many years will the original mortgage be completed on schedule, but for a limited period the monthly payment after the deferral will be higher. For example, I deferred three payments of 6000, and therefore the sum of the payments paid is 18,000 shekels. The bank will spread this sum into a new interest-free loan for five years, 60 months, and therefore the monthly payment will increase for the next five years by 18000 divided by 60 = 300 shekels.

I recommend using the second group's benefit in only two cases:

1. You have no other choice. - The income has been significantly harmed, you are unable to reduce expenses at the rate of income reduction, and you are starting a debt spiral, so you can use the benefit. If your bank uses the method that increases the monthly payment after the benefit and you think you can pay this monthly amount, I recommend you do this: take advantage of the benefit, pay the larger monthly payment afterward, and at the end of the larger monthly payments, take advantage of the fact that you have gotten used to paying an additional 300 shekels. And continue to save these 300 shekels monthly. Never underestimate a small, regular monthly saving in an interest-bearing channel. This saving can definitely be what catapults you to a higher level in terms of economic progress or increases your financial resilience so that the next time something bad and unexpected happens, you will be much more resistant and, in the long run, wealthy.
2. You can take advantage of an opportunity If, on the one hand, you are able to make your mortgage payments on time, but on the other hand, you are reading this article, then you have the option of deferring your mortgage payments to achieve a certain financial benefit. Let’s assume a mortgage with a remaining balance of 1 million shekels over 25 years, with a single-track, non-indexed fixed interest rate of 5.21%. With such a mortgage, the monthly payment is 6,000 shekels. The total payments you will make by the end of the term are:

Approximately 1.8 million shekels. If, on the other hand, you postpone three payments but save those same payments so that in three months you will have a savings of 18,000 shekels. In this situation, you will be able to deposit those 18,000 shekels in one payment and actually be in a situation where you have 25 years left to pay off a small loan of 18,000 shekels. In this case, the monthly payment and the total payment will be:

This means we can see that this exercise reduced the monthly payment by 108 NIS and the total payment by approximately 34,400 shekels over the entire 25 years. I am ignoring the risk of an early repayment fee because, given the rise in interest rates, most people will not have such a fee. Of course, it's worth checking this in advance by looking at the expenses. Mortgage Balance Report. As mentioned, this method should only be used if you will actually use the money to pay down the mortgage and not, for example, for a vacation. Vacations should be financed by managing. Constant of expenses, savings, and family investment. I leave to you the moral discussion of whether it is appropriate to receive a benefit because of war and the concern that you will collapse financially to improve your situation when, economically speaking, you were not required to receive the benefit at all.

The third group – All citizens of Israel who are not part of the two previous groups, or in other words, the lucky ones, even if they don't feel that way now. For these, banks offer the same offers that have at least been offered for mortgages as usual. Postponement of payments that carries interest, so that in total you will pay more to the bank. This offer should not be accepted Unless there is no other choice. The tendency of banks to take a more or less permanent benefit and brand it as a benefit because of Corona, the war, or any other reason gives a false sense that there is something special about it. This is not the case. Postponing payments is like taking out an additional loan. An additional loan will cost more money. It's not advisable.

Beyond the foregoing, the banks proactively increased the Credit frameworks their current accounts. See, for example, a letter I received:

Caution! A credit line is a tricky thing, and by the way, unique to Israel. It's a loan, but a loan disguised as something that isn't a loan. The ease of taking out this loan, which is essentially just spending more money than you earn, gives the feeling that being in overdraft is different from going and asking for a loan.

Let's say a person has a credit line of 50,000 shekels and is overdrawn by 45,000 shekels. This overdraft doesn't grow from month to month, because if it did, they would exceed their credit line and the bank would block them. I've seen many people like this over the years. If you give that person As a gift 45,000 shekels. It's unlikely he'll stay at zero balance for long; he'll likely return to a deficit of around 45,000 shekels because, for him, that's "zero." I'm not talking about you, of course, but about many other people. Now let's describe that same person with a deficit of 45,000 and a certain decrease in income due to the situation. Naturally, this should have put him on a strict budget. Emergency, cut expenses to a minimum, even if these expenses currently seem essential. But… if the bank increases the credit line even without us asking, it allows that person to postpone the contingency plan and increase the debt even further. There are two problems here:

This is terribly expensive. For a deficit of 45,000, the person will pay 45,000 * 12% = 5,400 shekels per year, or 450 shekels per month. If the deficit increases, they will pay even more. Note that if that person had received the 45,000 NIS gift from me and stayed at zero instead of creating a new deficit, they could have gone out for an extra meal at a restaurant every month—or spent 450 NIS on anything else. In other words, the deficit doesn’t allow one to "live" more, as many think, but rather results in a lesser "life.".

B. The overdraft limit has been temporarily increased. See the letter. The increase is only until the end of November. Anyone who increases their overdraft during this period may find themselves overdrawn later when the limit is reduced again. Caution.